Factors to consider for Soc Security?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
LaurenRose
Posts: 334
Joined: Fri Sep 23, 2022 12:33 pm

Factors to consider for Soc Security?

Post by LaurenRose »

I retired in 2021 from the fed. govt. My career there lasted only a decade so my pension only supplements my income needs.

I have been drawing from savings for income and will soon need to take from investments if I don't start drawing Soc Sec in the near future.

I am now 62 and will be doing Roth conversions before the end of 2022 and perhaps some in 2023.

I need to decide when to start taking Social Security.

I am loathe to sell equities when they are down, so I would be selling from fixed income (bond funds) etc. - taking Social Security would help me in that I wouldn't need to sell as much.

And yet, I wonder what I am waiting for lol. I don't need to leave a legacy.

Would appreciate any feedback on how to approach the when decision - I realize Medicare, RMDs etc. factor into the decision, I just don't know where to begin with strategizing. Suggestions appreciated.
User avatar
FiveK
Posts: 15690
Joined: Sun Mar 16, 2014 2:43 pm

Re: Factors to consider for Soc Security?

Post by FiveK »

Open Social Security: Free, Open-Source Social Security Calculator is a very good place to start. What does that suggest for you?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Factors to consider for Soc Security?

Post by dbr »

Note Medicare needs to be elected when you turn 65 whether or not you have started or start SS claiming then. Don't miss the open enrollment period. When you are on SS then Medicare costs can be deducted from that. Before you pay yourself. Also, depending on your government health insurance you might keep FEHB as your supplementary insurance. When the time comes go through all the nuances on that.
User avatar
#Cruncher
Posts: 3975
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Factors to consider for Soc Security?

Post by #Cruncher »

LaurenRose wrote: Mon Oct 03, 2022 10:03 am I am loathe to sell equities when they are down, so I would be selling from fixed income (bond funds) etc. ...
If you decide to delay, you're correct in choosing fixed income as the source for withdrawals to finance your spending during the delay. This is because, by delaying SS you're increasing the present value of your expected SS benefits. And SS benefits have the characteristics of a fixed income investment. So you'd be reducing your fixed income assets on one hand and increasing them on another.

To illustrate, assume you were born in 1960 and your SS benefit at Normal Retirement Age of 67 would be $30,000. If you claim SS at age 62, you'd receive 70% of this or $21,000. If you wait until 63, you'd receive 75% or $22,500. (See Effect of Early or Delayed Retirement on Retirement Benefits.) Assume your life expectancy is 22.46 years at age 63. (See far right column of SSA 1960 Cohort Life Table.) By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. [*]

To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000.

* Using the Excel PV function:
26,927 = -PV(2%, 22.46, 1500, 0, 0)
Tom_T
Posts: 4824
Joined: Wed Aug 29, 2007 2:33 pm

Re: Factors to consider for Soc Security?

Post by Tom_T »

#Cruncher wrote: Mon Oct 03, 2022 12:01 pm
LaurenRose wrote: Mon Oct 03, 2022 10:03 am I am loathe to sell equities when they are down, so I would be selling from fixed income (bond funds) etc. ...
If you decide to delay, you're correct in choosing fixed income as the source for withdrawals to finance your spending during the delay. This is because, by delaying SS you're increasing the present value of your expected SS benefits. And SS benefits have the characteristics of a fixed income investment. So you'd be reducing your fixed income assets on one hand and increasing them on another.

To illustrate, assume you were born in 1960 and your SS benefit at Normal Retirement Age of 67 would be $30,000. If you claim SS at age 62, you'd receive 70% of this or $21,000. If you wait until 63, you'd receive 75% or $22,500. (See Effect of Early or Delayed Retirement on Retirement Benefits.) Assume your life expectancy is 22.46 years at age 63. (See far right column of SSA 1960 Cohort Life Table.) By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. [*]

To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000.

* Using the Excel PV function:
26,927 = -PV(2%, 22.46, 1500, 0, 0)
What if my age-62 benefit is not enough to cover my expenses, but my age-67 benefit is? Then I'd have to withdraw more than the age-62 figure, no?
Golf maniac
Posts: 1359
Joined: Wed Dec 27, 2017 1:02 pm
Location: Florida

Re: Factors to consider for Soc Security?

Post by Golf maniac »

I am a Fed retiree and am delaying my SS benefit solely to maximize the survivor benefit for my spouse. If no spouse I would take it now. On Medicare Part B I have NALC High and I am not taking Part B as the catastrophic limit is $3500 per person and $5,000 per family per year under NALC. With basic Part B premiums at over $4k per year it doesn’t seem like a good trade off to me.
Topic Author
LaurenRose
Posts: 334
Joined: Fri Sep 23, 2022 12:33 pm

Re: Factors to consider for Soc Security?

Post by LaurenRose »

it looks like - even though I am three years away from Medicare, that I should decide now what to do about federal retiree healthcare vis a vis Medicare - because so many other decisions are framed around just that one.
Topic Author
LaurenRose
Posts: 334
Joined: Fri Sep 23, 2022 12:33 pm

Re: Factors to consider for Soc Security?

Post by LaurenRose »

By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. [*]

To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000.[/i]

I am not a numbers person, so I am hoping to make sure I understand the point made here.

Are you saying that the difference in the amount of my payout will be greater by holding back one year, versus the earnings loss of the equivalent funds withdrawn from investments - for spend?
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Factors to consider for Soc Security?

Post by dbr »

LaurenRose wrote: Tue Oct 04, 2022 10:27 am By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. [*]

To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000.[/i]

I am not a numbers person, so I am hoping to make sure I understand the point made here.

Are you saying that the difference in the amount of my payout will be greater by holding back one year, versus the earnings loss of the equivalent funds withdrawn from investments - for spend?
It might be the largest motivation to delay SS is to manage longevity risk and inflation by increasing the life inflation adjusted income stream. Risk management goes beyond a mere breakeven analysis.
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: Factors to consider for Soc Security?

Post by protagonist »

Hi, Lauren.

This is my way of simplifying the decision. I have posted this several times for people in the same situation, so forgive me for redundancy. Regulars are probably tired of reading this but if you think like me it might be of use to you:

Consider the fate of two retirees, Rich and Delores. Both retire at age 62....let's say they were both laid off and cannot find additional work.

At time of retirement, Rich has $1,000,000 in financial assets. . Delores has $10,000. Both would receive $20K/year from SS if they started benefits at age 62 and $35K/yr if they wait to age 70.

Delores' decision is simple. She needs to start benefits at 62 for survival.

Rich's decision is also simple. He should definitely wait until 70. Rich has plenty of savings to fund his early retirement. His concern is whether, due to unexpected financial reversal or whatever, he will still have enough money to live comfortably when and if he makes it to 85 or 90 or 95. If Rich dies suddenly at 71, he loses out big time on "overall benefits" by waiting until 70, but he dies happily with a happy retirement and peace of mind. On the other hand, if he lives a long time and if he runs out of money before he dies, he can still live much more comfortably on $35K/year than on $20K/year. So no matter when he dies or what the "break even point" is, he has way more peace of mind by deferring and a happier retirement.

If you have enough money to fund your early retirement, defer SS as long as possible. If not, start taking it whenever you feel you really need it to avoid significant immediate lifestyle compromise. It's that simple. Forget about break even ages, maximizing benefits in an unknown world, etc. What you should care about is minimizing lifestyle compromise and worry. This is a point that I think is crucial in much financial decision-making and is lost on many people who simply rely on the math. "Worry" is not simply quantifiable.

A huge mistake I humbly believe that many people make on this site is equating "maximum wealth" with "happiness" and "better life"...the latter is much more correlated with peace of mind. In that context, deciding when to start benefits is easy.

He who dies with the most toys does not always win. He who dies happily and in peace does.

Does that resonate with you?
Topic Author
LaurenRose
Posts: 334
Joined: Fri Sep 23, 2022 12:33 pm

Re: Factors to consider for Soc Security?

Post by LaurenRose »

protagonist - yes it does.

I appreciate very much your illustrative discussion in a practical manner.

LR
jnevada
Posts: 48
Joined: Tue Jun 15, 2021 12:21 pm

Re: Factors to consider for Soc Security?

Post by jnevada »

Retired in May at 62. Decided to take Social Security next month. Along with my pension it will cover all my living expenses. So I won't have to touch my tax deferred investments for years. Many reasons discussed on this board to wait and not to wait on taking Social Security. I am very happy not to have to take distributions from my 401k/IRA"s which are down 18% this year. I also will invest part of my Social Security on a monthly basis.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Factors to consider for Soc Security?

Post by JoeRetire »

LaurenRose wrote: Mon Oct 03, 2022 10:03 am Would appreciate any feedback on how to approach the when decision - I realize Medicare, RMDs etc. factor into the decision, I just don't know where to begin with strategizing. Suggestions appreciated.
For me, I like the idea of maximizing a guaranteed, inflation protected, tax-beneficial, potentially spouse-beneficial, potentially survivor-beneficial income stream for the rest of my life and my spouse's life (if any).

https://opensocialsecurity.com/ can help achieve that.
This isn't just my wallet. It's an organizer, a memory and an old friend.
User avatar
#Cruncher
Posts: 3975
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Factors to consider for Soc Security?

Post by #Cruncher »

Tom_T wrote: Mon Oct 03, 2022 7:18 pm
#Cruncher wrote: Mon Oct 03, 2022 12:01 pm... By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. ... To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000. ...
What if my age-62 benefit is not enough to cover my expenses, but my age-67 benefit is? Then I'd have to withdraw more than the age-62 figure, no?
Yes, you'd have to withdraw more. But it makes no difference in my conclusion.

Assume the original poster needs to fund $30,000 of spending for age 62. (This happens to be the age 67 benefit in my example.) If she claims SS at age 62, she'll collect $21,000 from SS. She would then need to withdraw $9,000 from her savings to fund the balance of the $30,000. If she delays claiming SS one year to age 63, she'd need to withdraw the entire $30,000; $21,000 more. But my point still holds: that extra $21,000 reduction in her bond holdings is more than offset by a $27,000 higher estimated present value of the extra $1,500 annual SS benefit if she delays.
LaurenRose wrote: Tue Oct 04, 2022 10:27 amAre you saying that the difference in the amount of my payout will be greater by holding back one year, versus the earnings loss of the equivalent funds withdrawn from investments - for spend?
Yes. To be precise, I'm saying the present value [*] of the $1,500 additional annual SS benefit exceeds the $21,000 of SS you forsake by not starting SS at age 62.

* If you lived 22.46 years to age 85.46, you'd collect $33,690 more (22.46 X 1500) in 2023 dollars. But I'm discounting those future dollars by 2% to arrive at the estimated present value of just under $27,000.
Tom_T
Posts: 4824
Joined: Wed Aug 29, 2007 2:33 pm

Re: Factors to consider for Soc Security?

Post by Tom_T »

#Cruncher wrote: Wed Oct 05, 2022 9:27 am
Tom_T wrote: Mon Oct 03, 2022 7:18 pm
#Cruncher wrote: Mon Oct 03, 2022 12:01 pm... By delaying one year, you would then receive $1,500 more per year for 22.46 years. Discounted at 2% this has a present value of almost $27,000. ... To finance the one year delay, you'd take $21,000 from your fixed income assets to replace the $21,000 you would have gotten from SS if you'd started at 62. You're still increasing your overall fixed income assets (broadly defined) by almost $6,000. ...
What if my age-62 benefit is not enough to cover my expenses, but my age-67 benefit is? Then I'd have to withdraw more than the age-62 figure, no?
Yes, you'd have to withdraw more. But it makes no difference in my conclusion.

Assume the original poster needs to fund $30,000 of spending for age 62. (This happens to be the age 67 benefit in my example.) If she claims SS at age 62, she'll collect $21,000 from SS. She would then need to withdraw $9,000 from her savings to fund the balance of the $30,000. If she delays claiming SS one year to age 63, she'd need to withdraw the entire $30,000; $21,000 more. But my point still holds: that extra $21,000 reduction in her bond holdings is more than offset by a $27,000 higher estimated present value of the extra $1,500 annual SS benefit if she delays.
(light bulb goes on) Thank you!
Post Reply